UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______ to ______
Commission File Number 0-25032
____________________
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 25-1724540
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
600 Mayer Street
Bridgeville, PA 15017
(Address of principal executive offices, including zip code)
(412) 257-7600
(Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
-
As of April 30, 2001, there were 6,081,228 outstanding shares of the
Registrant's Common Stock, $.001 par value.
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
This Quarterly Report on Form 10-Q contains historical information and forward-
looking statements. Statements looking forward are included in this Form 10-Q
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. They involve known and unknown risks and uncertainties such
as but not limited to expected market conditions that may cause the Company's
actual results to differ from future performance suggested herein. In the
context of forward-looking information provided in this Form 10-Q and in other
reports, please refer to the discussion of risk factors detailed in, as well as
the other information contained in, the Company's filings with the Securities
and Exchange Commission during the past 12 months.
INDEX PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations 2
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Cash Flows 4
Notes to the Unaudited Consolidated Condensed Financial 5
Statements
Item 2. Management's Discussion and Analysis of Financial Condition and 7
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
1
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Information)
(Unaudited)
For the
Three-month period ended
March 31,
2001 2000
---- ----
Net sales $ 21,259 $ 17,770
Cost of products sold 17,121 14,727
Selling and administrative expenses 1,558 1,102
------------- ------------
Operating income 2,580 1,941
Interest expense and other financing costs (181) (222)
Other income (expense), net 20 16
------------- ------------
Income before taxes 2,419 1,735
Income taxes 907 607
------------- ------------
Income before cumulative effect of
accounting change 1,512 1,128
Cumulative effect of accounting change,
net of tax -- (1,546)
------------- -----------
Net income (loss) $ 1,512 $ (418)
============= ===========
EARNINGS PER COMMON SHARE
Basic
Income before cumulative effect of accounting change $ 0.25 $ 0.19
Cumulative effect of accounting change, net of tax -- (0.26)
------------- -----------
Net income (loss) $ 0.25 $ (0.07)
============= ===========
Diluted
Income before cumulative effect of accounting change $ 0.25 $ 0.19
Cumulative effect of accounting change, net of tax -- (0.26)
------------- -----------
Net income (loss) $ 0.25 $ (0.07)
============= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
March 31, 2001
(Unaudited) December 31, 2000
-------------- -------------------
ASSETS
Current assets
Cash and cash equivalents $ 116 $ 1,109
Accounts receivable (less allowance for doubtful
accounts of $207 and $192) 14,613 12,819
Inventory 21,012 18,788
Other current assets 1,473 1,347
----------- ---------
Total current assets 37,214 34,063
Property, plant and equipment, net 39,939 39,090
Other assets 598 594
------------ ----------
Total assets $ 77,751 $ 73,747
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 6,640 $ 5,624
Outstanding checks in excess of bank balance 1,367 1,445
Current portion of long-term debt 1,803 1,808
Accrued employment costs 1,519 1,297
Other current liabilities 1,184 331
------------ ---------
Total current liabilities 12,513 10,505
Long-term debt 8,468 8,199
Deferred taxes 6,491 6,276
------------ ---------
Total liabilities 27,472 24,980
------------ ---------
Commitments and contingencies -- --
Stockholders' equity
Senior Preferred Stock, par value $.001 per share;
liquidation value $100 per share; 2,000,000
shares authorized; 0 shares issued and
outstanding -- --
Common Stock, par value $.001 per share;
10,000,000 shares authorized; 6,339,128
shares issued 6 6
Additional paid-in capital 25,888 25,888
Retained earnings 25,929 24,417
Treasury Stock at cost; 257,900
common shares held (1,544) (1,544)
----------- --------
Total stockholders' equity 50,279 48,767
----------- --------
Total liabilities and stockholders' equity $ 77,751 $ 73,747
=========== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the
Three-month period ended
March 31,
2001 2000
---- ----
Cash flows from operating activities:
Net income (loss) $ 1,512 $ (418)
Cumulative effect of accounting change --- 1,546
Adjustments to reconcile to net cash and cash equivalents
provided by operating activities:
Depreciation and amortization 641 561
Deferred taxes 215 207
Changes in assets and liabilities:
Accounts receivable, net (1,794) 12,113
Inventory (2,224) (15,332)
Accounts payable 1,016 1,502
Accrued employment costs 222 319
Other, net 719 357
--------- ---------
Net cash provided by operating activities 307 855
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,486) (995)
--------- ---------
Net cash used in investing activities (1,486) (995)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 136 ---
Long-term debt repayment (458) (455)
Borrowings under revolving line of credit 1,989 ---
Repayments under revolving line of credit (1,403) ---
Decrease in outstanding checks in excess of bank balance (78) (4)
--------- ---------
Net cash provided by (used in) financing activities 186 (459)
--------- ---------
Net decrease in cash (993) (599)
Cash and cash equivalents at beginning of period 1,109 868
--------- ---------
Cash and cash equivalents at end of period $ 116 $ 269
========= =========
Supplemental disclosure of cash flow information:
Interest paid (net of amount capitalized) $ 211 $ 96
Income taxes paid $ 690 $ 178
The accompanying notes are an integral part of these consolidated
financial statements.
4
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) The accompanying unaudited consolidated condensed financial statements of
operations for the three-month periods ended March 31, 2001 and 2000,
balance sheets as of March 31, 2001 and December 31, 2000, and statements of
cash flows for the three-month periods ended March 31, 2001 and 2000 have
been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, these statements should be
read in conjunction with the audited financial statements as of and for the
year ended December 31, 2000. In the opinion of management, the accompanying
unaudited, condensed consolidated financial statements contain all
adjustments, all of which were of a normal recurring nature, necessary to
present fairly, in all material respects, the consolidated financial
position at March 31, 2001 and December 31, 2000 and the consolidated
results of operations and of cash flows for the three-month periods ended
March 31, 2001 and 2000, and are not necessarily indicative of the results
to be expected for the full year.
2) In the fourth quarter of 2000, the Company adopted the provisions of the
Securities and Exchange Commission's (SEC) Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" (SAB 101). As a result of
the adoption, the Company's statements of operations and cash flows for the
2000 first quarter have been restated to include the effect of conforming to
SAB 101. Previously reported net sales and net income for the first quarter
of 2000 were $18,089,000 and $896,000, respectively. The application of the
SEC's guidance to language in the Company's previous Standard Terms and
Conditions of Sale required Universal Stainless to defer revenue recognition
until cash was collected, even though risk of loss passed to the buyer at
time of shipment. In the fourth quarter of 2000, management modified the
Company's Standard Terms and Conditions of Sale to more closely reflect the
substance of its sales transactions and permit the recognition of revenue on
a basis consistent with past practices.
3) The reconciliation of the weighted average number of shares of Common Stock
outstanding utilized for the earnings per common share computations are as
follows:
For the Three-month periods ended
March 31,
2001 2000
---- ----
Weighted average number of shares
of Common Stock outstanding 6,081,228 6,072,516
Assuming exercise of stock options
and warrants reduced by the
number of shares which could
have been purchased with the
proceeds from exercise of such
stock options and warrants 9,667 3,568
--------- ----------
Weighted average number of shares
of Common Stock outstanding,
as adjusted 6,090,895 6,076,084
========== ==========
4) The major classes of inventory are as follows (dollars in thousands):
March 31, 2001 December 31, 2000
Raw materials and supplies $ 1,981 $ 1,695
Semi-finished and finished steel products 15,922 13,916
Operating materials 3,109 3,177
------------- ----------
Total inventory $ 21,012 $ 18,788
============= ==========
5
5) Property, plant and equipment consists of the following (dollars in
thousands):
March 31, 2001 December 31, 2000
Land and land improvements $ 822 $ 822
Buildings 3,937 3,889
Machinery and equipment 41,779 39,838
Construction in progress 1,808 2,311
----------- -----------
48,346 46,860
Accumulated depreciation (8,407) (7,770)
----------- -----------
Property, plant and equipment, net $ 39,939 $ 39,090
========== ===========
6) The Company has reviewed the status of its environmental contingencies and
believes there are no significant changes from that disclosed in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During 2000, the Company adopted the provisions of the Securities and Exchange
Commission's (SEC) Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements." The application of the SEC's guidance to the language
contained in the Company's Standard Terms and Conditions of Sale existing at the
time of adoption required the Company to defer revenue until cash was collected,
even though risk of loss passed to the buyer at time of shipment. This had the
effect of deferring certain sale transactions previously recognized in 1999 into
2000. During the fourth quarter of 2000, the Company modified its Standard Terms
and Conditions of Sale to more closely reflect the substance of its sale
transactions, which resulted in revenue being recorded at the time of shipment
rather than when cash was received. Because this did not occur until the fourth
quarter, the revenue and cost information for the first quarter of 2000 relates
to cash collections. In order to facilitate analysis of the Company's results of
operations, amounts in the table below summarize revenue and cost information
based on shipments made by the Company in the respective quarter, rather than
cash collected for 2000. Such amounts are then reconciled to reported amounts as
necessary (dollars in thousands):
For the Three-month periods ended
March 31,
2001 2000
---- ----
Net sales
Stainless steel $ 17,423 $ 14,565
Tool steel 1,517 2,227
High-strength low alloy steel 609 559
High temperature alloy steel 665 367
Conversion services 871 340
Other 174 31
------------ -------------
Net sales on shipments 21,259 18,089
Effect of accounting change --- (319)
------------ -------------
Total net sales 21,259 17,770
------------ -------------
Cost of products sold
Raw materials 6,242 6,589
Other 10,879 8,814
------------ -------------
Total cost of products shipped 17,121 15,403
Effect of accounting change --- (676)
------------ -------------
Total cost of products sold 17,121 14,727
------------ -------------
Selling and administrative expenses 1,558 1,102
------------ -------------
Operating income from shipments 2,580 1,584
Effect of accounting change --- 357
------------ -------------
Operating income $ 2,580 $ 1,941
============ =============
Three-month period ended March 31, 2001 as compared to the similar period in
2000
The increase in net sales for the three-month period ended March 31, 2001 as
compared to the similar period in 2000 reflects increased shipments to the
forging and OEM markets which primarily serve the aerospace, petrochemical and
power generation industries. This increase was partially offset by lower
shipments of stainless steel commodity products and tool steel products as a
result of increased imports and the slowing economy. The Company shipped
approximately 11,000 tons during the three-month period ended March 31, 2001
compared to approximately 10,800 tons during the three-month period ended March
31, 2000.
Cost of products shipped, as a percent of net sales on shipments, was 80.5% and
85.2% for the three-month periods ended March 31, 2001 and 2000, respectively.
This decrease is primarily due to the impact of the mix of products shipped.
Natural gas costs increased by more that $800,000 in the first quarter of 2001
in comparison to the first
7
quarter of 2000 because of higher rates. The natural gas surcharge, which took
effect with shipments beginning on February 1, 2001, offset approximately
$150,000 of this increased cost.
Selling and administrative expenses increased by $456,000 from the year-ago
period and included a $190,000 obligation to its former Vice President of
Operations, as well as increased business insurance of $60,000 and employment
costs related to the Company's improved business conditions.
Interest expense and other financing costs decreased from $222,000 for the
three-month period ended March 31, 2000 to $181,000 for the three-month period
ended March 31, 2001 primarily due to a reduction in debt levels between the two
periods.
The effective income tax rate utilized in the three-month periods ended March
31, 2001 and 2000 was 37.5% and 35%, respectively. The effective income tax rate
utilized in the current period reflects the anticipated effect of the Company's
permanent tax deductions against expected income levels in 2001.
FINANCIAL CONDITION
The Company has financed its operating activities during the three-month period
ended March 31, 2001 through cash flows from operations, cash on hand,
borrowings from the PNC Line and capitalized leases. At March 31, 2001, working
capital approximated $24.7 million, as compared to $23.5 million at December 31,
2000. The ratio of current assets to current liabilities decreased from 3.2:1 at
December 31, 2000 to 3.0:1 at March 31, 2001. The decrease in the ratio of
current assets to current liabilities is primarily due to a decrease in cash,
which was used to fund debt payments and an increase in liabilities to fund
operations. The debt to capitalization ratio was 17% at March 31, 2001 and
December 31, 2000.
The Company's capital expenditures approximated $1.5 million for the three-month
period ended March 31, 2001 which primarily related to the purchase of a new
electro slag remelt furnace and the installation of the billet grinder and
Oliver plate saw at the Bridgeville facility. At March 31, 2001, the Company had
outstanding purchase commitments in addition to the expenditures incurred to
date of approximately $2.2 million. These expenditures are expected to be funded
substantially from internally generated funds and additional borrowings. As of
March 31, 2001, the Company had $5.9 million available for borrowings under a
revolving line of credit with PNC Bank.
There were no shares of Common Stock repurchased by the Company during the
three-month period ended March 31, 2001. The Company is authorized to repurchase
an additional 57,100 shares of Common Stock as of March 31, 2001.
The Company anticipates that it will fund its 2001 working capital requirements,
its capital expenditures and the stock repurchase program primarily from funds
generated from operations and borrowings. The Company's long-term liquidity
requirements, including capital expenditures, are expected to be financed by a
combination of internally generated funds, borrowings and other sources of
external financing if needed.
2001 Outlook
The Company estimates that its sales for the second quarter of 2001 will be
within the range of $20 to $24 million, representing an increase over the prior
year period sales of $19 million. Diluted earnings per share for the second
quarter of 2001 are currently projected to range from $0.23 to $0.28. The
following factors were considered in developing these estimates:
. The Company's backlog approximated $35 million on March 31, 2001 as compared
to $21 million on December 31, 2000. The mix of orders booked for delivery in
the second quarter by market segment is in line with the 2001 first quarter
shipments.
. The Company believes that the high level of demand for its forging and OEM
products will continue throughout 2001, while orders for its commodity and
tool steel products are expected to remain at existing levels due to current
economic conditions and imports.
. The higher rates for natural gas and the need to assess a surcharge are
expected to continue. The Company's second quarter estimates also take into
account possible electrical and natural gas curtailments throughout the
summer months.
8
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has reviewed the status of its market risk and believes there are no
significant changes from that disclosed in the Company's Annual Report on Form
10-K for the year ended December 31, 2000.
9
Part II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - none.
b. No reports on Form 8-K were filed during the first quarter of 2001.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
Date: May 10, 2001 /s/ C. M. McAninch
-------------- ------------------------------------------
Clarence M. McAninch
President, Chief Executive Officer and
Director (Principal Executive Officer)
Date: May 10, 2001 /s/ Richard M. Ubinger
-------------- ------------------------------------------
Richard M. Ubinger
Vice President of Finance,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
11